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Improving SME competitiveness: To target or not to target? What businesses, and how?

Christine Qiang's picture

Globally, small and medium-sized enterprises (SMEs) make up 95 percent of all businesses, employ 70 percent of the workforce, and are frequently argued to be the “missing link” between growth and inclusiveness. In the words of Anabel Gonzalez, Senior Director of the World Bank Group’s Trade & Competitiveness (T&C) Global Practice, SMEs hold the potential to be “an engine of growth and employment,” but “they face hurdles in competing in domestic and international markets.”
 
Marion Jansen, Chief Economist of the International Trade Centre, shared her insights on this question in April, when she presented ITC’s new SME Competitiveness Outlook at the inaugural event of a new learning series organized by the Investment Climate Applied Research team. Drawing on the input of thought leaders, case studies and detailed country profiles, the report’s framework organizes relevant micro-, meso-, and macro-data from well-known sources (including the Bank Group’s Enterprise Surveys) along three pillars — connect, compete and change — illustrating that advancements in SME competitiveness must cut across three layers: the firm’s own capabilities, the immediate business environment, and the broader national environment (from customs tariffs to the efficiency of government procedures).
 
While it is common knowledge that SMEs are far less internationalized than large firms, the report finds that access to information about export opportunities is the Number One bottleneck that SMEs face. By both mapping out new export markets for a country’s existing exportable products and identifying the top products with diversification potential, the report provides an interesting combination of trade-potential analysis and SME policy guidance.

Indonesia, for example, was found to hold unrealized export potential for tin, rubber and palm oil within the Asia Pacific region, while the SME analysis showed that firm-level constraints were the main factors holding back local SMEs eager to capitalize on these opportunities. Moreover, an analysis of Colombia revealed that the country has not been realizing its full export potential to OECD countries. The main issues for Colombian SMEs appear to be less related to firm-level constraints than related to the general investment climate — in particular, in terms of customs efficiency.

We all know by now that there is a distinction between the majority of small firms in developing countries that fail to expand beyond a few employees (‘survivalists’) and a small group of high-performance firms (‘gazelles’) that experience rapid growth (Nichter & Goldmark, 2009). In fact, in developing countries, the productivity gap between large firms and SMEs is double that observed in developed countries. Closing that gap could yield large payoffs that are more likely to reach the bottom of the income pyramid. The argument is that, because SMEs are, on average, less productive than large firms, employees are paid lower wages. To remedy this situation and help elevate those at the bottom of the pyramid, the development community in the past decade has committed billions of dollars worldwide to support SMEs.



Source: Jansen, M., 2016: “SME Competitiveness Outlook 2015.” Presentation at the World Bank.
 

The changing face of entrepreneurship

Ganesh Rasagam's picture


Members of the World Bank Group’s Innovation & Entrepreneurship team – along with two of the entrepreneurs supported by the team (with their affiliations in parentheses) – at the Global Entrepreneurship Summit. From left to right: Temitayo Oluremi Akinyemi, Loren Garcia Nadres, Natasha Kapil, Kenia Mattis (ListenMi Caribbean), Ganesh Rasagam, Charity Wanjiku (Strauss Energy), Komal Mohindra, Ellen Olafsen.


What do you picture when you hear of new technologies and hot startups? Perhaps a trendy office space overlooking the Golden Gate Bridge and tech moguls from San Francisco? Well, think again.

At the recent Global Entrepreneurship Summit (GES) in Silicon Valley — an annual event hosted by President Barack Obama and attended by nearly 700 entrepreneurs — one message came across clearly: Great ideas come from anywhere. And, increasingly, they’re coming from talented entrepreneurs who are overcoming the odds in cities like Nairobi, Kenya or Kingston, Jamaica.

Increasing internet and mobile-phone access is bringing new opportunities to young entrepreneurs from developing countries. More than 40 percent of the world’s population now has access to the internet and, among the poorest 20 percent of households, nearly 7 out of 10 have a mobile phone.

Businesses that can take advantage of the widespread use of digital technologies are growing at double-digit rates — in Silicon Valley, as well as in emerging markets. Ground-breaking technologies and business ideas are flourishing across the world, and a new, more global generation of tech entrepreneurs is on the rise.
 
The potential impact — economic and social — is significant. Entrepreneurs have a powerful ability to create jobs, drive innovation and solve challenges, particularly in developing economies, where technology can address old inefficiencies in key sectors like energy, transport and education.
 
“[I]n our era, everybody here understands that new ideas can evolve anywhere, at any time. And they can have an impact anywhere,” said John Kerry, the U.S. Secretary of State. “In my travels as Secretary, I have been absolutely amazed by the groundbreaking designs I’ve seen, by the ideas being brought to life everywhere — sometimes where you least expect it.  By the men and women striking out to create new firms with an idea of both turning a profit as well as improving their communities.”
 
But for many of the brightest minds in developing countries, entrepreneurship is not an easy path.

As President Obama said during the Summit: “It turns out that starting your own business is not easy. You have to have access to capital. You have to meet the right people. You have to have mentors who can guide you as you get your idea off the ground. And that can be especially difficult for women and young people and minorities, and others who haven’t always had access to the same networks and opportunities.”


President Barack Obama on stage at the Global Entrepreneurship Summit with Mark Zuckerberg and entrepreneurs.
 

Let’s talk business: Knowledge-sharing helps make Sub-Saharan Africa more competitive

Catherine Masinde's picture

The Ease of Doing Business Initiative (EDBI) is helping turn sub-Saharan Africa’s markets into attractive investment destinations.
 
Over the past 15 years, Sub-Saharan African countries have been on a tremendous journey to reform their business environments. The results speak for themselves: In the “Doing Business” 2016 report, Sub-Saharan Africa recorded about 30 percent of the reforms that were implemented worldwide, and the region boasted half of the world’s top 10 improvers – making it the best-reforming region worldwide. As one example of what those trends mean: It takes four days to register a company in Kenya today, as compared to 54 days as recently as 10 years ago. In Rwanda, it takes an entrepreneur 32 days to transfer property – less time than it takes in Germany – compared to the 370 days that were required 10 years ago.
 
Despite the encouraging improvements, however, most Sub-Saharan African countries rank in the lower tier of the Doing Business measurements. Beyond the data about business conditions, it takes an average of 130 days for a business in the region to get a new electricity connection – yet, even after that business has such a connection, it experiences frequent power outages. The outages consume almost 700 hours per year – the highest such figure in the world.
 
We know that good practices, which are being implemented in the region, can help address such problems. The great challenge is to share that knowledge of good practices across reforming countries.
 
The EDBI is a peer-to-peer learning event that was requested by African countries that hope to facilitate knowledge-sharing about Doing Business reforms. For three days last month, Kenya hosted this year’s conference, whose theme focused on leveraging ICT to improve governments’ service to businesses – and ultimately to each country’s citizens. That theme seemed fitting for Kenya, which is a global success story on seamlessly integrating technology in citizens’ lives. Kenya, as you may recall, is the country that invented MPESA, the unique mobile-money payment system, and that is now rolling out “eCitizen,” the online government service portal.

Taxing ‘public bads’ and investing in ‘public goods’: Constructive tax policies can help prevent harm and help promote progress

Christopher Colford's picture
To tax, or not to tax? That is the question that preoccupied a thought-provoking panel at a recent World Bank Group conference on “Winning the Tax Wars” – along with such pragmatic policy questions as: What products and behaviors should be taxed, aiming to discourage their use? How heavily should taxes be imposed to penalize socially destructive behaviors? If far-sighted, behavior-nudging taxes are indeed adopted, where should the resulting public revenue be spent?

Before memories start to fade about a stellar springtime conference – at which several of the Bank Group’s Global Practices (including those focusing on Governance and on Health, Nutrition and Population) assembled some of the world's foremost authorities on tax policy – it’s well worthwhile to recall the rigorous reasoning that emerged from one of the year’s most synapse-snapping scholarly symposia at the Bank.

Subtitled “Protecting Developing Countries from Global Tax Base Erosion,” the conference focused mainly on the international tax-avoidance scourge of Base Erosion and Profit-Shifting (BEPS). Coming just one week after a major conference in London of global leaders – an anti-corruption effort convened by Prime Minister David Cameron of the United Kingdom – the two-day forum in the Preston Auditorium built on the fair-taxation momentum generated by the recent Panama Papers disclosures. Those leaks about international tax-evasion strategies dominated the global policy debate this spring, when they exposed the rampant financial conniving and misconduct by high-net-worth individuals and multinational corporations seeking to avoid or evade paying their fair share of taxes.
 
The Bank Group conference, however, explored tax-policy issues that ranged far beyond the headline-grabbing disclosures about the scheming of rogue law firms and accounting firms, like the now-infamous Panama-based Mossack Fonseca and other outposts of the tax-dodging financial-industrial complex. Conference-goers also heard intriguing analyses about how society can levy taxes on “public ‘bads’ ” to promote investment in “public ‘goods’ ” – as part of the broader quest for broad-scale tax fairness.
 
"Winning The Tax Wars" via revenue-raising strategies

‘Neoliberalism’ and its excesses: After a sudden cloudburst of controversy, clear IMF insights on the 'disquieting' drawbacks of free-market dogma

Christopher Colford's picture

Hot off the presses, this month’s edition of the journal “Finance and Development” has been generating both heat and light – and is helping propel a welcome reconsideration of some central elements of the long-dominant but now-disputed Washington Consensus.

The always-thought-provoking journal from the International Monetary Fund, the World Bank’s Bretton Woods sibling, sparked some unusually intense debate recently by publishing a well-documented analysis that poses a succinct and straightforward question — “Neoliberalism: Oversold?

That line of inquiry is surely familiar to all those who have been following the debate — supported by meticulous data from such scholars as Thomas Piketty (“Capital in the 21st Century”), Chrystia Freeland (“Plutocrats”) and Branko Milanovic (“Global Inequality: A New Approach for the Age of Globalization”) — over the intensifying economic inequality that is now corroding many societies, in both the developed and developing worlds. Yet the very invocation of the inflammatory term “neoliberalism” seems to have triggered an intense, if brief, summer storm.

Granted, the word “neoliberalism” is somewhat ill-defined, and, as the article’s authors point out, it is “a label used more by critics than by the architects of the policies.” And, true, it’s unusual to see such a freighted question being asked by the IMF, which has often been seen as a main driver of the Washington Consensus. Yet, no doubt about it, putting “neoliberalism” in the headline makes for a mighty arresting article.

Keeping pace with digital disruption: Regulating the sharing economy

Cecile Fruman's picture
Globalization in the 21st century is increasingly driven by digitization, as is described in new research by the McKinsey Global Institute. MGI's recent report notes that, since 2007, trade flows have slowed and financial flows have not fully recovered while digital information flows have soared. [See Footnote 1.]

The World Economic Forum describes this transformation as the “Fourth Industrial Revolution,” because the speed and extent of disruption is unprecedented.

A key trend of this revolution is the emergence of technology-enabled, peer-to-peer and business-to-peer platforms that facilitate commerce. These platforms – most commonly referred to as the “sharing economy” or the “collaborative consumption economy” – have grown exponentially in recent years, disrupting existing industry structures and value chains in developed and emerging markets.

Notably, growing internet and mobile penetration catalyzed the growth of disruptive firms and innovations, such as Uber and Airbnb, in a number of middle-  and low-income countries. However, as highlighted by the 2016 World Development Report, for this digital revolution to be inclusive, and for it produce dividends for the poor, its “analog complements” – such as the institutions that are accountable to citizens and the regulations that enable workers to access and leverage this new economy – should also be in place.

The global proliferation of these collaborative platforms poses new challenges for regulators trying to keep pace with rapidly evolving business models. This issue was at the heart of discussions between former Head of Public Policy at Facebook, Uber and DJI, Corey Owens, and Professor of Law at Howard University and former regulator at the Federal Trade Commission, Andy Gavil, at the 2016 Business Environment Forum that took place in Washington from May 17 to 19.
 




 

Dealing with de-risking: a tale of tenacity and creativity

Emile van der Does de Willebois's picture

In 2014, money transfer operators sending funds to Somalia were coming under increasing pressure. Western financial institutions, concerned about money possibly ending up in the hands of terrorists or persons on sanctions lists, decided the risk was too high and started pulling out. Although one channel remained open, the situation was so acute that the World Bank and the Somalia Multi-Partner Fund decided to take action and create a fallback position in case that last channel, too, should close. A scenario in which the Somali diaspora had no legitimate way to send money home to their families would have been devastating to Somalis who depend on these funds for their basic needs.
 

We know very little about what makes innovation policy work: Four areas for more learning

Xavier Cirera's picture


Photo Credit: Innovation Growth Lab.

Whether in Silicon Valley or Kenya’s furniture sector, innovation is a critical driver of job creation and economic growth. It could be a mobile app to connect farmers and buyers of agricultural products. Or perhaps an efficient and affordable solar roof tile. Innovation comes in many forms, from products and services to business models.

Yet despite the growing investment in policies to support innovation, we know surprisingly little about what makes these policies effective. To advance understanding of what works in innovation policy, Nesta, in collaboration with the Kauffman Foundation and the World Bank Group, organized the recent Innovation Growth Lab (IGL) Global Conference in London. The mission of IGL is to promote evidence-based innovation and entrepreneurship policies by funding randomized controlled trials (RCTs) and testing new policy approaches.
 
The conference was successful in discussing both research and policy challenges — a welcome change from typical innovation conferences, which often focus on either academia or policy.

Made in Mauritania: How one woman’s agribusiness is promoting local produce and blazing a trail for women’s entrepreneurship

Niamh O'Sullivan's picture



A Maaro Njawaan rice paddy in Mauritania

NOUAKCHOTT, Mauritania — In a country where just 5 percent of top managers are women, Safietou Kane is something of an anomaly. Starting your own company as CEO at 23 years of age, on the other hand, might be considered remarkable in any context — male or female — but that is precisely what Safietou did when she founded her family agribusiness firm, Maaro Njawaan, in her hometown of Tékane in Traza, Mauritania, after completing her Bachelor of Science degree in International Business and Management at the University of Tampa in the United States last year.

Hailing from the fertile Senegal River Valley zone in the south, Safietou is no stranger to agriculture and was brought up keenly aware of the problems that plague Mauritanian farmers, most notably the lack of commercial outlets for their production and competition from imported agricultural goods, particularly rice. Like its regional neighbors, Mauritania consumes twice as much rice as it produces. Food imports have increased exponentially in recent years, particularly since the food crisis in 2007. As Safietou acknowledges, however, such a high level of imports often comes at the expense of local farmers and smallholders, whose livelihoods depend on rice.

Despite falling demand prices, however, Safietou saw an opportunity for her and her community, establishing a private company that would support local rice producers by buying their high-quality rice and then milling it in a local factory before packaging and transporting the product to stores in Nouakchott and Nouadhibou in the north.
 
Working along the entire value chain, Safietou’s firm is able to purchase rice directly from producers, regularizing production and providing stable employment in her hometown. It is widely recognized that nurturing national agricultural production has great potential for economic development and poverty reduction, particularly in rural areas, although Safietou admits that she was also motivated by other considerations.

“What we want to show is that high-quality rice is already available here in Mauritania, and [that] we should be proud of our local products.” As in many African countries, Mauritanian goods suffer from a poor image among consumers. Indeed, Mauritanians often deride their own country's products as being of lower quality, preferring to pay a higher price for rice from Asia.

The false debate: choosing between promoting FDI and domestic investment

Cecile Fruman's picture

Should we focus our efforts on foreign investment or domestic investment?” Policymakers in developing economies often ask this question when the World Bank Group advises them on how to improve their countries’ investment climate or investment promotion efforts. Our answer is: They do not need to choose one over the other. In order to grow and diversify, an economy needs both domestic investment and foreign direct investment (FDI).  The two forms of private investments can be strong complements.
 
Recognizing the Potential Benefits of FDI
 
The economic benefits of FDI were identified a long time ago. A Harvard Business School paper published 30 years ago summarized the benefits of FDI based on an extensive review of economic literature (Wint, 1986). In short: Benefits traditionally attributed to FDI include job creation, transfer of technology and know-how (including modern managerial and business practices), access to international markets, and access to international financing.

Granted, some of these benefits also occur thanks to domestic investment. For instance, domestic investments create jobs in a host economy – usually many more than FDI. However: What FDI does well is enhance or maximize some of the benefits already generated by domestic investments in a developing economy.
 
To stay with the example of job creation: Foreign firms might not create as many jobs as the domestic private sector, but they often create better-paid jobs that require higher skills. That helps elevate the skills level in host economies. The same can be said for other FDI benefits. For instance, more advanced technologies and managerial or marketing practices can be introduced in a developing economy through foreign investment, and at a much faster rate than would be the case if only domestic investment were allowed. Moreover, through partnerships with foreign investors who have existing distribution channels and commercial arrangements around the world, developing countries’ firms can benefit from increased market access.



In China, millions of rural residents each year migrate to cities to seek work. As they find jobs in modernizing industries, they gain the skills they need to earn higher incomes. In this photo, an employe in Chongqing is learning higher-level computer skills. Photo: Li Wenyong / The World Bank
 

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